For years now, decision-makers in the mortgage industry have been keeping an eye on the steady year-over-year increases in costs associated with producing a loan.
Groups, such as the MBA, have been studying this phenomenon for almost a decade. Yet, the cost to originate a loan has continued to rise unabated.
According to the most recent MBA Quarterly Mortgage Bankers Performance Report, during Q4 of 2017, independent mortgage brokers experienced the 2nd highest level of total production expense in nearly 10 years of performing the study.
Even after factoring in correlated influences such as the obvious connection between percentage-based commission and an increasing average loan balance, the data over the course of 10 years makes it abundantly clear that total loan expenses have been consistently trending up.
The compensation problem
Total loan production costs include commissions, compensation, occupancy, equipment, technology, as well as other corporate allocations and expenses. However, it’s really the first two buckets (commission and compensation) that make up the lion’s share of the final figure.
Stiff competition amongst lenders for top sales talent makes it difficult to foresee any decrease to commissions on the horizon. After all, the top 40% of originators create the vast majority of production volume. Those are incredibly valuable people to have at your company.
That brings the focus to compensation.
More people than ever are touching a loan file before it gets to the finish line. Operational inefficiencies and underperforming units have caused payroll to swell across both back and front office personnel.
Instead of using technology, training, and well-constructed workflow to optimize support staff for maximum output – and using data to measure performance and hold everyone accountable – the tendency for many lenders has been to simply throw more people at a problem.
The key to maintaining efficiency at scale is to have a defined expectation for output performance, and only hire additional staff when the inbound volume projects to outpace the maximum capacity of the staff.
Using automation to curb rising costs
We’ve spoken ad nauseam about the need for originators to focus on profit-generating activities in order to grow their businesses. For support staff, particularly back-office personnel, they also perform activities that can include technological automation. Even better, these activities will suffer no drop-off in quality.
When you fulfill necessary, yet time-consuming and low-impact activities through automation, staff can spend their time completing high-impact tasks.
It is easy to see how a shift in activity focus would contribute to a more profitable lending operation.
Teams stay lean and only grow organically when the production volume makes it necessary. Put simply, more attention is able to be given to the important details of a loan. This puts a cleaner file on an underwriter’s desk and, in turn, reduces loan turn times.
When lenders use a mortgage point-of-sale system such as Floify to automate document collection via direct-source data providers, it guarantees accurate and fraud-proof docs the first time.
Not only does this shave days off the origination process (and hours of work for your processor), but it also gives lenders the opportunity to access programs like Fannie Mae’s Day 1 Certainty and gain relief from reps and warrants – further increasing their overall profitability.
None of this is to say that people should lose their jobs in favor of technology and automation. However, automation does create more efficient lending operations and origination teams. And more importantly, it can continue to provide profit-boosting benefits after the loan has closed.
Some of these savings could even be passed along to borrowers, lowering the upfront cost barrier to homeownership.
Who doesn’t want more loans to close?